NO You also need to consider the \u0393 of the portfolio Question 5 A side track

No you also need to consider the γ of the portfolio

This preview shows page 20 - 25 out of 25 pages.

NO!!! You also need to consider theΓof the portfolio
Background image
Question 5A side-trackAnother analogy to understandΔandΓis to associate them withspeed (Δ) and acceleration (Γ)A delta neutral, but gamma positive position in a portfolio is akinsomeone who likes only likes acceleration (both when increasingspeed and breaking)
Background image
Question 5Lets look at theΓof this positionΓportfolio=Γcall+ Γput+δΓstock=positive+positive+0=positive
Background image
Question 5The change in portfolio value when the position is(a) small positive gamma (b) large positive gammeIn both cases, the portfolio value increases when the underlyingmoves a lot (in both direction)
Background image
Question 5So the company prefers wild movements in spot rate
Background image
Thanks
Background image

You've reached the end of your free preview.

Want to read all 25 pages?

  • Fall '17
  • markku
  • Management, Strike price, Θcall

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture